President Trump and the Big Six (Speaker Ryan, Senate President McConnell, House Ways and Means Chairman Brady, Senate Finance Chairman Hatch, Treasurer Secretary Mnuchin, and White House Economic Advisor Cohn) earlier released the Unified Framework for Tax Reform that outlined the principles for tax reform. The President has been consistent that any tax plan focus on job creation and higher wages, relief for middle class workers, and a corporate tax rate that was competitive with the rest of the industrial world.

The House release the Tax Cuts and Jobs Act which outlined their proposed plan. All week, Ways and Means Committee addressed amendments to initial plan which was passed on a party line vote and moves to the House.

The Senate unveiled their plan on Thursday that has some significant differences than the House plan.

Key differences between House and Senate tax reform plans

Brackets: House plan has four brackets, 12%, 25%, 35%, and 39.6. Senate version keeps seven brackets but lowers the rates in brackets 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%
Child tax credit: House increases to $1,600, Senate to $1,650 per child
Corporate rate: while both drop the rate to 20%, Senate delays implementation of rate cuts to 2019
Estate Tax: House doubles exemption to estates worth more than $10 million next year and completely phases out over six years. Senate doubles the exemption but keeps the tax
Major medical expenses: deduction for expenses that exceed 10% of a taxpayer’s income would be eliminated under House plan; Senate plan has no changes
Mortgage interest: House bill for new mortgages allows interest on the first $500,000 borrowed for a primary home while interest on second homes and home equity loans would no longer be deductible. The Senate would not change the current limit (first $1 million borrowed) but would end the deduction for home equity loans
State and local taxes: House bill would allow a deduction for up to $10,000 in property taxes, but end the deductions for income and sales taxes. Senate version would eliminate all of them
Student loan interest: Deduction eliminated by the House, no change in Senate version
Teacher purchases: Deductions by teachers who purchase classroom supplies eliminated in House version, no change in Senate plan

Senate plan keeps several deductions listed above (teacher expenses, student loans, medical expenses) as well as items such as adoptions (the House through markups at Ways and Means reinstated the adoption credit)

Some of the biggest changes occurred for pass-through businesses (partnerships, S corps, sole proprietorships) which are currently taxed at the individual tax rates. The Senate version would create a new deduction for those businesses in the low 30’s, well above the 20% corporate rate. Bases on Section 199 domestic manufacturing deduction that would lower the effective tax rate. It would apply to certain domestic non-service pass through income. The House in the initial plan proposed a 25% rate but in many cases, only 30% of a business owner’s income would be eligible for the lower rate with the other 70% classified as wage income. House Ways and Means changed that in committee to include lower tax rates for smaller pass-through businesses. The amendment would create a nine-percent tax rate for the first $75,000 of a married active owner who has less than $150,000 of pass-through income.